For state and local governments looking for a way to protect gig workers from exploitation, Seattle’s new “Pay Up” law may offer a way forward.
The law, passed May 31 by the Seattle City Council, requires app-based companies with 250 or more contract workers to provide a minimum income for gig workers, while not designating them as employees. In Seattle, that means they are entitled to $17.27 per hour. The law also mandates that companies pay the mileage rate set by the Internal Revenue Service to cover the cost of gas and wear-and-tear on vehicles.
Seattle and New York City already had laws covering Uber and Lyft drivers. The new legislation applies to other gig workers, such as delivery drivers and workers affiliated with staffing apps such as Handy and Instawork.
“You can discuss whether the adjustment rates are sufficient to assure people get the minimum wage, but overall it’s the right concept,” said Ken Jacobs, chair of Center for Labor Research and Education at the University of California, Berkeley.
The new law is the latest effort to rein in gig work and make it more like regular employment. A recent Gallup survey found that 36% of U.S. workers participate in the gig economy through primary or secondary jobs, and jurisdictions around the world have passed or are working on laws to give drivers and others more security and stability.
Chicago is considering legislation that would mandate minimum pay for Uber and Lyft drivers while a proposed law in Massachusetts sets a minimum payment rate for gig workers while clearly stating they are not employees and are not entitled to benefits. Elsewhere, the E.U. is currently debating a law that would give gig workers the same protections as employees.
Why other cities may not be able to pass similar measures
In the aftermath of Seattle’s vote, it’s likely other cities will try to pass similar legislation, Jacobs said. But not all cities can. Cities in California, for example, are forbidden from doing this by Proposition 22, a referendum mandating gig workers not be construed as employees. “In many states local authority to set standards are preempted by state laws,” Jacobs said.
The new legislation could have a big impact on Seattle’s gig workers. A recent report by Working Washington calculated the average hourly rate made by contract workers in Seattle was under $9.98 and many were working well over 40 hours a week.
Still, there are potential downsides to laws like this, said Gad Allon, director of the management technology program at the Wharton School of the University of Pennsylvania. “The positive side is that people earn more than they did before,” Allon said. “The negative side is for the platform to guarantee this wage, they have to prioritize and may decrease the number of people who are on their platform.”
After New York City passed a law mandating higher pay for drivers at ride sharing companies, Uber began limiting drivers’ access to its app. Both Uber and Lyft argued that the new rules would prevent some drivers from earning money and would result in a loss of service for New Yorkers living in remote areas not serviced by taxis.
Right now it’s not possible to know exactly how things will shake out after such laws go into effect, said Brent Goldfarb, professor of entrepreneurship at the University of Maryland School of Business. “Two things could happen if you increase wages for the gig worker in Uber or Lyft: The company eats the difference or they raise the cost of rides,” Goldfarb said.
“If the company raises the cost of rides, then fewer people may take rides at the higher prices and then there would be less work to go around,” Goldfarb said.
When a single company raises the price, then consumers may turn to a competitor, Goldfarb said. But if a new law forces all companies to raise their prices then the outcome will depend on the elasticity of demand. “I’m guessing the companies themselves may not know the answer to this,” he added.